ITEM 1. BUSINESS.
Overview
We are a medical device company manufacturing an environmentally
conscientious system for the collection and disposal of infectious fluids that result from surgical procedures and post-operative
care. We own patent rights to our products, which consist of the STREAMWAY® SYSTEM and distribute our products to medical facilities
where bodily and irrigation fluids produced during medical procedures must be contained, measured, documented, and disposed. Our
products minimize the exposure potential to the healthcare workers who handle such fluids. Our goal is to create products that
dramatically reduce staff exposure without significant changes to established operative procedures, historically a major stumbling
block to innovation and product introduction. In addition to simplifying the handling of these fluids, we believe our technologies
provide cost savings to facilities over the aggregate costs incurred today using the traditional canister method of collection,
neutralization, and disposal. We sell our products through an experienced in-house sales force. The Company has one VP of Sales,
one in-house sales person and three regional sales managers on staff as of March 2017. We are hiring one additional regional manager
in early 2017, and intend to utilize independent distributors in the United States, Canada and Europe, initially, and eventually
to other areas of the world.
The STREAMWAY SYSTEM is a wall mounted fully automated system
that disposes of an unlimited amount of suctioned fluid providing uninterrupted performance for surgeons while virtually eliminating
healthcare workers exposure to potentially infectious fluids found in the surgical environment. The system also provides an innovative
way to dispose of ascetic fluid with no evac bottles, suction canisters, transport or risk of exposure. The Company also manufactures
and sells two disposable products required for system operation: a bifurcated single procedure filter with tissue trap and a single
use bottle of cleaning solution. Both items are used on a single procedure basis and must be discarded after use.
Skyline’s virtually hands free direct-to-drain technology
(a) significantly reduce the risk of healthcare worker exposure to these infectious fluids by replacing canisters, (b) further
reduces the risk of worker exposure when compared to powered canister technology that requires transport to and from the operating
room, (c) reduce the cost per procedure for handling these fluids, and (d) enhance the surgical team’s ability to collect
data to accurately assess the patient’s status during and after procedures.
Skyline believes that the STREAMWAY SYSTEM is unique to the
industry in that it allows for continuous suction to the surgical field and provides unlimited capacity to the user so no surgical
procedure will ever have to be interrupted to change canisters. It is wall mounted and takes up no valuable operating room space.
The System can replace the manual process of collecting fluids in canisters and transporting and dumping in sinks outside of the
operating room that is still being used by many hospitals and surgical centers.
Skyline believes its products provide substantial cost savings
and improvements in safety in facilities that still use manual processes. In cases where healthcare organizations re-use canisters,
the System eliminates the need for cleaning of canisters for re-use. The SYSTEM reduces the safety issues facing operating room
nurses, the cost of the handling process, and the amount of infectious waste generated when the traditional method of disposing
of canisters is used. The SYSTEM is fully automated, does not require transport to and from the operating room and eliminates any
canister that requires emptying. It is positioned to penetrate its market segment due to its virtually hands free operation, simple
design, ease of use, continuous suction, continuous flow, unlimited capacity and efficiency in removal of infectious waste with
minimal exposure of operating room personnel to potentially infectious material.
The Company was originally incorporated on April 23, 2002 in
Minnesota as BioDrain Medical, Inc. Effective August 6, 2013, the Company changed its name to Skyline Medical Inc. Pursuant to
an Agreement and Plan of Merger effective December 16, 2013, the Company merged with and into a Delaware corporation with the same
name that was its wholly-owned subsidiary, with such Delaware Corporation as the surviving corporation of the merger. On August
31, 2015, the Company completed a successful offering and concurrent uplisting to The NASDAQ Capital Market.
On August 30, 2016, the Company entered into a letter of intent
to form a joint venture with Electronic On-Ramp, Inc. (“EOR”). EOR’s partner contracts with government agencies
are expected to provide the Company with access to bid on procurement contracts for up to $550 million or more in federal funds
budgeted for health, security, life safety systems support, humanitarian assistance and disaster preparedness.
At a special meeting of stockholders held on September 15, 2016,
the Company’s stockholders (i) approved an amendment to the Company’s certificate of incorporation to increase the
number of authorized shares of common stock from 100,000,000 to 200,000,000 and (ii) approved an amendment to the Company’s
certificate of incorporation to affect a reverse stock split of the outstanding shares of its common stock within certain limits.
On September 16, 2016, the Company filed a Certificate of Amendment to its Certificate of Incorporation to effect the increase
in the authorized capital stock. On October 26, 2016, the Company filed a Certificate of Amendment to its Certificate of Incorporation
to effect a reverse stock split of the outstanding shares of its common stock at a ratio of one-for-twenty-five (1:25), and a proportionate
decrease of the authorized common stock from 200,000,000 shares to 8,000,000 shares. The reverse stock split took effect at 5:00
p.m. New York time on October 27, 2016, and the Company’s common stock commenced trading on a post-split basis on October
28, 2016. The Company’s board of directors have determined that the Company may require additional authorized shares for
anticipated equity financings, future equity offerings, strategic acquisition opportunities, and the continued issuance of equity
awards under our stock incentive plan to recruit and retain key employees, and for other proper corporate purposes. As a result,
the board of directors called another special meeting of the stockholders that took place on January 29, 2017. The vote, a proposal
to increase the number of authorized shares of common stock from 8,000,000 shares to 24,000,000 shares of common stock under the
Company’s certificate of incorporation passed.
On September 20, 2016, the Company entered into a partnership
and exclusive reseller agreement with GLG Pharma (“GLG”). Under the terms of the agreement, GLG intends to develop
rapid diagnostic tests that utilize fluid and tissue collected by the STREAMWAY System during procedures. The Company will issue
an aggregate of 400,000 shares of common stock to GLG in four separate tranches of 100,000 shares of common stock in each tranche.
The shares reserved in each tranche will be released after the achievement of certain development milestones designated in the
agreement. In addition, the Company will pay a royalty to GLG on the sale of individual tests. Also, on November 1, 2016, the Company
announced that it agreed to grant GLG exclusive rights to market and distribute the STREAMWAY System in the U.K. On November 2,
2016, the Company announced that it agreed to grant GLG the same rights in Poland and certain other Countries in Central Europe.
Effective October 27, 2016, the board of directors of the Company
appointed J. Melville (Mel) Engle and Timothy A. Krochuk to serve as directors of the company. These appointments increase the
number of directors to five.
Effective November 21, 2016, the Company received a Medical
Device Establishment License to sell the STREAMWAY System and related disposables in Canada. The Company is negotiating with several
distributors and expects to come to terms covering approximately 1,500 hospitals in all 13 provinces of Canada.
On November 25, 2016, the Company completed a registered direct
offering of common stock and warrants. In connection with the registered direct offering, the Company entered into Common Stock
Purchase Agreements (the “Purchase Agreements”) with three institutional investors pursuant to which the Company sold
an aggregate of 756,999 shares of common stock, par value $0.01 per share, and warrants (the “Series C Warrants”) to
purchase up to an aggregate of 756,999 shares of our common stock, par value $0.01 per share. The common stock and Series C Warrants
were sold in units, with each unit consisting of one share of common stock and a Series C Warrant to purchase one share of our
common stock at an exercise price of $4.46 per share. Each unit was sold at a purchase price of $2.62. Units were not issued or
certificated. The shares of common stock and Series C Warrants were immediately separable and were issued separately. The sale
of the units were completed on November 29, 2016. The net proceeds to the Company from the registered direct offering, after deducting
placement agent fees and estimated offering expenses, were approximately $1.74 million. The units were offered and sold in the
registered direct offering pursuant to the Company’s “shelf” registration statement (File No. 333-213766), which
was declared effective by the United States Securities and Exchange Commission (the “SEC”) on October 4, 2016. Dawson
James Securities, Inc. served as the sole placement agent in connection with the registered direct offering. The Company issued
a unit purchase option to the placement agent, pursuant to which the Company granted the placement agent the right to purchase
from the Company up to a number of units equal to 5% of the units sold in the offering (or up to 37,500 units) at an exercise price
equal to 125% of the public offering price of the units in the offering, or $3.275 per unit. The unit purchase option will expire
on November 25, 2021.
Effective December 1, 2016, the board of directors of the Company
appointed Carl Schwartz to serve as the Chief Executive Officer, and appointed Richard Gabriel to serve as a director of the company.
Mr. Gabriel’s appointment increases the number of directors to six.
Effective December 29, 2016, the Nasdaq Hearings Panel granted
the Company’s request for continued listing on NASDAQ pursuant to an extension through April 11, 2017, to evidence compliance
with the $2.5 million stockholders’ equity requirement. To regain compliance with the minimum stockholders’ equity
requirement, the Company completed an underwritten public offering of units for gross proceeds of $3,937,500 on January 19, 2017,
as described further below. On February 15, 2017, the Company received formal notice from NASDAQ indicating that the Company have
evidenced full compliance with all requirements for continued listing on the Nasdaq Capital Market, and that the Company’s
common stock will continue to be listed on Nasdaq. The previously disclosed listing matter has now been closed.
On January 13, 2017, the Company announced the pricing of a
firm commitment underwritten public offering of 1,750,000 Units at an offering price of $2.25 per Unit, with each Unit consisting
of one share of the Company’s Common Stock and 0.2 of a Series D Warrant, with each whole Series D Warrant purchasing one
share of our common stock at an exercise price of $2.25 per whole share. The shares of Common Stock and the Series D Warrants are
immediately separable and will be issued separately. Gross proceeds to the Company from the offering was approximately $3,937,500
before deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company. The Company
has granted the underwriter a 45-day option to purchase an additional (i) up to 175,000 additional shares of common stock at the
public offering price per unit less the price per warrant included in the unit and less the underwriting discount and/or (ii) additional
warrants to purchase up to 35,000 additional shares of common stock at a purchase price of $0.01 per warrant to cover over-allotments,
if any. The transaction closed on January 19, 2017. Subsequently, the underwriter exercised the over-allotment option in full to
purchase 175,000 additional shares of common stock and Series D Warrants to purchase 35,000 additional shares of common stock.
The closing of the exercise of the over-allotment option occurred on February 22, 2017. Net proceeds to the Company from the exercise
of the over-allotment in full were approximately $358,312, after deducting underwriting discounts and commissions and before deducting
estimated offering expenses payable by the Company.
Our address is 2915 Commers Drive, Suite 900, Eagan, Minnesota
55121. Our telephone number is 651-389-4800, and our website address is www.skylinemedical.com. Information on our website is not
included or incorporated by reference in this report.
Industry and Market Analysis
Infectious and Bio-hazardous Waste Management
There has long been recognition of the collective potential
for ill effects to healthcare workers from exposure to infectious/bio-hazardous materials. Federal and state regulatory agencies
have issued mandatory guidelines for the control of such materials, and in particular, bloodborne pathogens. OSHA’s Bloodborne
Pathogens Standard 29 CFR 1910.1030 requires employers to adopt engineering and work practice controls that would eliminate or
minimize employee exposure from hazards associated with bloodborne pathogens. The medical device industry has responded to this
need by developing various products and technologies to limit exposure or to alert workers to potential exposure.
The presence of infectious materials is most prevalent in the
surgical suite and post-operative care units where often, large amounts of bodily fluids, including blood, bodily and irrigation
fluids are continuously removed from the patient during the surgical procedure. Surgical teams and post-operative care personnel
may be exposed to these potentially serious hazards during the procedure via direct contact of blood materials or more indirectly
via splash and spray.
According to the Occupational Safety and Health Administration
(“OSHA”), workers in many different occupations are at risk of exposure to bloodborne pathogens, including Hepatitis
B and C, and HIV/AIDS. First aid team members, housekeeping personnel, nurses and other healthcare providers are examples of workers
who may be at risk of exposure.
In 1991, OSHA issued the Bloodborne Pathogens Standard to protect
workers from this risk. In 2001, in response to the Needlestick Safety and Prevention Act, OSHA revised the Bloodborne Pathogens
Standard. The revised standard clarifies (and emphasizes) the need for employers to select safer needle devices and to involve
employees in identifying and choosing these devices. The revised standard also calls for the use of “automated controls”
as it pertains to the minimization of healthcare exposure to bloodborne pathogens. Additionally, employers are required to have
an exposure control plan that includes universal precautions to be observed to prevent contact with blood or other potentially
infectious materials, such as implementing work practice controls, requiring personal protective equipment and regulating waste
and waste containment. The exposure control plan is required to be reviewed and updated annually to reflect new or modified tasks
and procedures, which affect occupational exposure and to reflect changes in technology that eliminate or reduce exposure to bloodborne
pathogens.
According to the American Hospital Association’s (AHA)
Hospital Statistics, 2013 edition, America’s hospitals performed approximately 86 million surgeries. This number does not
include the many procedures performed at surgery centers across the country.
The majority of these procedures produce potentially infectious
materials that must be disposed with the lowest possible risk of cross-contamination to healthcare workers. Current standards of
care allow for these fluids to be retained in canisters, located in the operating room where they can be monitored throughout the
surgical procedure. Once the procedure is complete these canisters and their contents are disposed using a variety of methods all
of which include manual handling and result in a heightened risk to healthcare workers for exposure to their contents. A Frost
& Sullivan research report from April 24, 2006 estimates that 60 million suction canisters are sold each year and the estimated
market value of canisters is upwards of $120 million.
A study by the Lewin Group, prepared for the Health Industry
Group Purchasing Association in April 2007, reports that infectious fluid waste accounts for more than 75% of U.S. hospitals biohazard
disposal costs. The study also includes findings from a bulletin published by the University of Minnesota’s Technical Assistance
Program. “A vacuum system that uses reusable canisters or empties directly into the sanitary sewer can help a facility cut
its infectious waste volume, and save money on labor, disposal and canister purchase costs.” The Minnesota’s Technical
Assistance Program bulletin also estimated that, in a typical hospital, “. . . $75,000 would be saved annually in suction
canister purchase, management and disposal cost if a canister-free vacuum system was installed.”
We expect the hospital surgery market to continue to increase
due to population growth, the aging of the population, expansion of surgical procedures to new areas, for example, use of the endoscope,
which requires more fluid management, and new medical technology.
There are approximately 40,000 operating rooms and surgical
centers in the U.S. (AHA, Hospital Statistics, 2008). The hospital market has typically been somewhat independent of the U.S. economy;
therefore we believe that our targeted market is not cyclical, and the demand for our products will not be heavily dependent on
the state of the economy. We benefit by having our products address both the procedure market of nearly 51.6 million inpatient
procedures (CDC, National Hospital Discharge Survey: 2010 table) as well as the hospital operating room market (approximately 40,000
operating rooms).
Current Techniques of Collecting Infectious Fluids
Typically, during the course of the procedure, fluids are continuously
removed from the surgical site via wall suction and tubing and collected in large canisters (1,500 - 3,000 milliliters (ml) capacity
or 1.5 – 3.0 liters) adjacent to the surgical table.
These canisters, made of glass or high impact plastic, have
graduated markers on them allowing the surgical team to make estimates of fluid loss in the patient both intra-operatively as well
as for post-operative documentation. Fluid contents are retained in the canisters until the procedure is completed or
until the canister is full and needs to be removed. During the procedure, the surgical team routinely monitors fluid
loss using the measurement calibrations on the canister and by comparing these fluid volumes to quantities of saline fluid introduced
to provide irrigation of tissue for enhanced visualization and to prevent drying of exposed tissues. After the procedure
is completed, the fluids contained in the canisters are measured and a calculation of total blood loss is determined. This
is done to ensure no excess fluids of any type remain within the body cavity or that no excessive blood loss has occurred, both
circumstances that may place the patient at an increased risk post-operatively.
Once total blood loss has been calculated, the healthcare personnel
must dispose of the fluids. This is typically done by manually transporting the fluids from the operating room to a
waste station and directly pouring the material into a sink that drains to the sanitary sewer where it is subsequently treated
by the local waste management facility, a process that exposes the healthcare worker to the most risk for direct contact or splash
exposure. Once emptied these canisters are placed in large, red pigmented, trash bags and disposed of as infectious
waste – a process commonly referred to as “red-bagging.”
Alternatively, the canisters may be opened in the operating
room and a gel-forming powder is poured into the canister, rendering the material gelatinous. These gelled canisters
are then red-bagged in their entirety and removed to a bio-hazardous/infectious holding area for disposal. In larger
facilities the canisters, whether pre-treated with gel or not, are often removed to large carts and transported to a separate special
handling area where they are processed and prepared for disposal. Material that has been red-bagged is disposed of separately,
and more expensively, from other medical and non-medical waste by companies specializing in that method of disposal.
Although all of these protection and disposal techniques are
helpful, they represent a piecemeal approach to the problem of safely disposing of infectious fluids and fall short of providing
adequate protection for the healthcare workers exposed to infectious waste. A major spill of fluid from a canister,
whether by direct contact as a result of leakage or breakage, splash associated with the opening of the canister lid to add gel,
while pouring liquid contents into a hopper, or during the disposal process, is cause for concern of acute exposure to human blood
components–one of the most serious risks any healthcare worker faces in the performance of his or her job. Once
a spill occurs, the entire area must be cleaned and disinfected and the exposed worker faces a potential of infection from bloodborne
pathogens. These pathogens include, but are not limited to, Hepatitis B and C, HIV/AIDS, HPV, and other infectious agents. Given
the current legal liability environment the hospital, unable to identify at-risk patients due to concerns over patient rights and
confidentiality, must treat every exposure incident as a potentially infectious incident and treat the exposed employee according
to a specific protocol that is both costly to the facility and stressful to the affected employee and his or her co-workers. In
cases of possible exposure to communicable disease, the employee could be placed on paid administrative leave, frequently involving
worker’s compensation, and additional workers must be assigned to cover the affected employee’s responsibilities. The
facility bears the cost of both the loss of the affected worker and the replacement healthcare worker in addition to any ongoing
health screening and testing of the affected worker to confirm if any disease has been contracted from the exposure incident.
Canisters are the most prevalent means of collecting and disposing of infectious fluids in hospitals today. Traditional,
non-powered canisters and related suction and fluid disposable products are exempt and do not require FDA clearance.
We believe that our virtually hands free direct-to-drain technology
will (a) significantly reduce the risk of healthcare worker exposure to these infectious fluids by replacing canisters, (b) further
reduce the risk of worker exposure when compared to powered canister technology that requires transport to and from the operating
room, (c) reduce the cost per procedure for handling these fluids, and (d) enhance the surgical team’s ability to collect
data to accurately assess the patient’s status during and after procedures.
In addition to the traditional canister method of waste fluid
disposal, several new powered medical devices have been developed which address some of the deficiencies described above. MD
Technologies, Inc., Dornoch Medical Systems, Inc. (Zimmer), and Stryker Instruments have all developed systems that provide for
disposal into the sanitary sewer without pouring the infectious fluids directly through a hopper disposal or using expensive gel
powders and most are sold with 510(k) concurrence from the FDA. Most of these competing products continue to utilize
some variant on the existing canister technology, and while not directly addressing the canister, most have been successful in
eliminating the need for expensive gel and its associated handling and disposal costs. Our existing competitors that
already have products on the market have a clear competitive advantage over us in terms of brand recognition and market exposure.
In addition, the aforementioned companies have extensive marketing and development budgets that could overpower an early stage
company like ours. We believe that Stryker Instruments has the dominant market share position.
Products
The STREAMWAY Fluid Waste Management System (“SYSTEM”)
– Direct-to-Drain Medical Fluid Disposal
The STREAMWAY SYSTEM suctions surgical waste fluid from the
patient using standard surgical tubing. The waste fluid passes through our proprietary disposable filters and into our device. The
STREAMWAY SYSTEM maintains continuous suction to the procedural field at all times. A simple, easy to use Human Interface Display
screen guides the user through the simple set up process, ensuring that a safe vacuum level is identified and set by the user for
each procedure and additionally guides them through the cleaning process.
The STREAMWAY SYSTEM is unique to our industry in that it allows
for continuous suction to the surgical field and provides unlimited capacity to the user so no surgical procedure will ever have
to be interrupted to change canisters. It is wall mounted and takes up no valuable operating room space.
The SYSTEM will replace the manual process of collecting fluids
in canisters and transporting and dumping in sinks outside of the operating room that is still being used by many hospitals and
surgical centers. The manual process, involving canisters, requires that the operating room personnel open the canisters that
contain waste fluid, often several liters, at the end of the surgical procedure and either add a solidifying agent or empty the
canisters in the hospital drain system. Some facilities require that used canisters be cleaned by staff and reused. It is during
these procedures that there is increased potential for contact with the waste fluid through splashing or spills. The SYSTEM eliminates
the use of canisters and these cleaning and disposal steps by collecting the waste fluid in the internal collection chamber and
automatically disposing of the fluid with no handling by personnel. Each procedure requires the use of a disposable
filter. At the end of each procedure, a proprietary cleaning fluid is attached to the SYSTEM and an automatic cleaning cycle ensues,
making the device ready for the next procedure. The cleaning fluid bottle and its contents are used to clean the internal
fluid pathway in the device to which personnel have no exposure. During the cleaning cycle, the cleaning fluid is pulled
from the bottle into the device, and then disposed in the same manner as the waste fluid from the medical procedure. At
the end of the cleaning cycle, the bottle is discarded and is 100% recyclable. The filter and any suction tubing used during
the procedure must be disposed of in the same manner as suction tubing used with the canister system. Handling of this
tubing does present the potential for personnel exposure but that potential is minimal.
We believe our product provides substantial cost savings and
improvements in safety in facilities that still use manual processes. In cases where healthcare organizations re-use canisters,
the SYSTEM eliminates the need for cleaning of canisters for re-use. The SYSTEM reduces the safety issues facing operating
room nurses, the cost of the handling process, and the amount of infectious waste generated when the traditional method of disposing
of canisters is used. The SYSTEM is fully automated, does not require transport to and from the operating room and eliminates
any canister that requires emptying. We believe it is positioned to penetrate its market segment due to its virtually hands
free operation, simple design, ease of use, continuous suction, continuous flow, unlimited capacity and efficiency in removal of
infectious waste with minimal exposure of operating room personnel to potentially infectious material.
In contrast to competitive products, the wall-mounted SYSTEM
does not take up any operating room floor space and it does not require the use of any external canisters or handling by operating
room personnel. It does require a dedicated system in each operating room where it is to be used. The SYSTEM
is the only known direct-to-drain system that is wall-mounted and designed to collect, measure and dispose of, surgical waste.
Other systems on the market are portable, meaning that they are rolled to the bedside for the surgical case and then rolled to
a cleaning area, after the surgery is complete, and use canisters, which still require processing or require a secondary device
(such as a docking station) to dispose of the fluid in the sanitary sewer after it has been collected. They are essentially
powered canisters. A comparison of the key features of the devices currently marketed and the SYSTEM is presented in
the table below.
Key Feature Comparison
|
Feature
|
|
Skyline
Medical
Inc.
|
|
Stryker
Instruments
|
|
DeRoyal
|
|
Dornoch
Medical
Systems,
Inc.
(Zimmer)
|
|
MD
Technologies,
Inc.
|
Portable to Bedside vs. Fixed Installation
|
|
Fixed
|
|
Portable
|
|
Fixed
|
|
Portable
|
|
Fixed
|
Uses Canisters
|
|
No
|
|
Yes
|
|
Yes
|
|
Yes
|
|
No
|
Secondary Installed Device Required for Fluid Disposal
|
|
No
|
|
Yes
|
|
Yes
|
|
Yes
|
|
No
|
Numeric Fluid Volume Measurement
|
|
Yes
|
|
Yes
|
|
No
|
|
Yes
|
|
Optional
|
Unlimited Fluid Capacity
|
|
Yes
|
|
No
|
|
No
|
|
No
|
|
Yes
|
Continuous, Uninterrupted Vacuum
|
|
Yes
|
|
No
|
|
No
|
|
No
|
|
No
|
Installation Requirements :
|
|
|
|
|
|
|
|
|
|
|
Water
|
|
No
|
|
Yes
|
|
Yes
|
|
Yes
|
|
No
|
Sewer
|
|
Yes
|
|
Yes
|
|
Yes
|
|
Yes
|
|
Yes
|
Vacuum
|
|
Yes
|
|
No
|
|
No
|
|
No
|
|
Yes
|
The SYSTEM may be installed on or in the wall during new construction
or renovation or installed in a current operating room by connecting the device to the hospital’s existing sanitary sewer
drain and wall suction systems. With new construction or renovation, the system will be placed in the wall and the incremental
costs are minimal, limited to connectors to the hospital drain and suction systems (which systems are already required in an operating
room), the construction of a frame to hold the SYSTEM in position, and minimal labor. The fluid collection chamber is
internal to the device unit and requires no separate installation. Based upon our consultations with several architects,
we believe that there is no appreciable incremental expense in planning for the SYSTEM during construction.
For on-the-wall installation in a current operating room, the
location of the SYSTEM may be chosen based on proximity to the existing hospital drain and suction systems. Installation
will require access to those systems through the wall and connection to the systems in a manner similar to that for within-the-wall
installation. The SYSTEM is mounted on the wall using a mounting bracket supplied with the system and standard stud
or drywall attachments.
Once installed, the SYSTEM has inflow ports positioned on the
front of the device that effectively replace the current wall suction ports most commonly used to remove fluids during surgery. Additionally,
a disposable external filter, which is provided as part of our disposable cleaning kit, allows for expansion to additional inflow
suction ports by utilizing one or two dual port filters.
Although the SYSTEM is directly connected to the sanitary sewer,
helping to reduce potential exposure to infectious fluids, it is possible that installation of the system will temporarily cause
inconvenience and lost productivity as the operating rooms will need to be taken off line temporarily.
One of the current techniques utilized by Stryker, Cardinal
Health, and other smaller companies typically utilizes two to eight canisters positioned on the floor or on elaborate rolling containers
with tubing connected to the hospital suction system and to the operative field. Once the waste fluids are collected,
they must be transported out of the operating room and disposed of using various methods. These systems take up floor
space in and around the operating room and require additional handling by hospital personnel, thereby increasing the risk of exposure
to infectious waste fluids generated by the operating room procedure. Handling infectious waste in this manner is also
more costly.
A summary of the features of the wall unit include:
|
·
|
Minimal Human Interaction
. The wall-mounted SYSTEM provides a small internal reservoir that keeps surgical waste isolated from medical personnel and disposes the medical waste directly into the hospital sanitary sewer with minimal medical personnel interaction. This minimal interaction is facilitated by the automated electronic controls and computerized LCD touch-screen allowing for simple and safe single touch operation of the device.
|
|
·
|
Fluid Measurement
. The STREAMWAY System volume measurement allows for in-process, accurate measurement of blood/saline suctioned during the operative procedure, and eliminates much of the estimation of fluid loss currently practiced in the operating room. This is particularly important in minimally invasive surgical procedures, where accounting for all fluids, including saline added for the procedure, is vital to the operation. The physician and nursing team can also view in real time the color of the extracted or evacuated fluid through the viewing window on the system.
|
|
·
|
Cleaning Solution
. A bottle of cleaning solution, proprietary to and sold by us, is used for the automated cleaning cycle at the conclusion of each procedure and prepares the STREAMWAY SYSTEM for the next use, reducing operating room turnover time. The cleaning solution is intended to clean the internal tubing, pathways, and chamber within the system. The cleaning solution bottle is easily attached to the STREAMWAY SYSTEM by inserting the bottle into the mount located on the front of the unit and inverting the bottle. The automated cleaning process takes less than five minutes and requires minimal staff intervention. The disposable cleaning fluid bottle collapses at the end of the cleaning cycle rendering it unusable; therefore, it cannot be refilled with any other solution. The instructions for use clearly state that our cleaning fluid, and only our cleaning fluid, must be used with the STREAMWAY SYSTEM following each surgical case. The warranty is voided if any other solution is used.
|
|
|
|
|
|
·
|
Procedure Filters.
One or two filters, depending on the type of procedure, will be used for every surgical procedure. The filter has been developed by us, is proprietary to the STREAMWAY SYSTEM and is only sold by us. The filter is a two port, bifurcated, disposable filter that contains check valves and a tissue trap that allows staff to capture a tissue sample and send to pathology if needed. The filters are disposed of after each procedure. The cleaning fluid and filter are expected to be a substantial revenue generator for the life of the STREAMWAY SYSTEM.
|
|
|
·
|
Ease of Use
. The SYSTEM simply connects to the existing suction tubing from the operative field (causing no change to the current operative methods). Pressing the START button on the SYSTEM touch screen enacts a step by step instruction with safety questions ensuring that the correct amount of suction is generated minimizing the learning curve for operation at the surgical site.
|
|
·
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Installation
. We arrange installation of the SYSTEM through a partnership or group of partnerships. Such partnerships will include, but not be limited to, local plumbers, distribution partners, manufacturer's representatives, hospital supply companies and the like. We train our partners and standardize the procedure to ensure the seamless installation of our products. The SYSTEM is designed for minimal interruption of operating room and surgical room utilization. Plug-and-play features of the design allow for almost immediate connection and hook up to hospital utilities for wall-mounted units allowing for quick start-up post-installation.
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Sales Channel Partners
. The SYSTEM is sold to end-users through a combination of independent stocking distributors, manufacturer’s representatives, and direct sales personnel. We intend that all personnel involved in direct contact with the end-user have extensive training and are approved by Skyline. We maintain exclusive agreements between Skyline and the sales channel partners outlining stocking expectations, sales objectives, target accounts and the like. Contractual agreements with the sales channel partners are reviewed on an annual basis and we expect that such agreements will contain provisions allowing them to be terminated at any time by Skyline based on certain specified conditions.
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Competitive Pricing
. The list sales price to a hospital or surgery center is $24,900 per system (one per operating room - installation extra) and $24 per unit retail for the proprietary consumable kit to the U.S. hospital market.
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Intellectual Property
We believe that to maintain a competitive advantage in the marketplace,
we must develop and maintain protection of the proprietary aspects of our technology. We rely on a combination of patent, trade
secret and other intellectual property rights and measures to protect our intellectual property.
We spent approximately $406,000 in 2016 and $261,000 in 2015
on research and development. On January 25, 2014, the Company filed a non-provisional PCT Application No. PCT/US2014/013081
claiming priority from the U.S. Provisional Patent Application, number 61756763 which was filed one year earlier on January 25,
2013. The Patent Cooperation Treaty (“PCT”) allows an applicant to file a single patent application to seek patent
protection for an invention simultaneously in each of the 148 member countries of the PCT, including the United States. By filing
this single “international” patent application through the PCT system, it is easier and more cost effective than filing
separate applications directly with each national or regional patent office in the various countries in which patent protection
is desired.
Our PCT patent application is for an enhanced model of the surgical
fluid waste management system. We utilize this enhanced technology in the updated version of the STREAMWAY SYSTEM unit we began
selling in the first quarter of 2014. We obtained a favorable International Search Report from the PCT searching authority indicating
that the claims in our PCT application are patentable (i.e., novel and non-obvious) over the cited prior art. A feature claimed
in the PCT application is the ability to maintain continuous suction to the surgical field while simultaneously measuring, recording
and evacuating fluid to the facilities sewer drainage system. This provides for continuous operation of the STREAMWAY SYSTEM unit
in suctioning waste fluids, which means that suction is not interrupted during a surgical operation, for example, to empty a fluid
collection container or otherwise dispose of the collected fluid. We believe that this continuous operation and unlimited capacity
feature provides us with a significant competitive advantage, particularly on large fluid generating procedures. All competing
products, except certain models of MD Technologies, have a finite fluid collection capacity necessitating that the device be emptied
when capacity is reached during the surgical procedure. In the case of MD Technologies while some of their models may have an unlimited
capacity their process is not continuous because it requires switching the vacuum containers when one becomes full. For example,
when the first container becomes full, the vacuum is switched over to a second container to collect the fluid in the second container
while the fluid in the first container is drained. When the second container becomes full, the vacuum is again switched back to
the first container to collect fluid while the second container is drained, and so on. Even though the switching of the vacuum
between containers is automated in certain MD Technology models, the automated switching results in brief interruptions or reductions
in suction during the surgical procedure.
The Company holds the following granted patents in the United
States, and a pending application in the United States on its earlier models: US7469727, US8123731 and US Publication No. US20090216205
(collectively, the “Patents”). These Patents will begin to expire on August 8, 2023.
In general, the Patents are directed to a system and method
for collecting waste fluid from a surgical procedure while ensuring there is no interruption of suction during the surgical procedure
and no limit on the volume of waste fluid which can be collected. More particularly, the Patents claim a system and method in which
waste fluid is suctioned or drawn into holding tanks connected to a vacuum source which maintains a constant negative pressure
in the holding tanks. When the waste fluid collected in the holding tanks reaches a predetermined level, the waste fluid is measured
and pumped from the holding tanks while maintaining the negative pressure. Therefore, because the negative pressure is maintained
in the holding tanks, waste fluid will continue to be drawn into the holding tanks while the waste fluid is being pumped from the
holding tanks. Thus, there is no limit to the volume of waste fluid which can be collected, and the suction at the surgical site
is never interrupted during the surgical procedure.
We also rely upon trade secrets, continuing technological innovations
and licensing opportunities to develop and maintain our competitive position. We seek to protect our trade secrets and proprietary
know-how, in part, with confidentiality agreements with employees, although we cannot be certain that the agreements will not be
breached, or that we will have adequate remedies for any breach.
The Disposables
The Skyline disposables are a critical component of our business
model. The disposables consist of a proprietary, pre-measured amount of cleaning solution in a plastic bottle that attaches to
the SYSTEM. The disposables also include a 2-port bifurcated single use in-line filter. The proprietary cleaning solution, placed
in the specially designed holder, is attached and recommended to be used following each surgical procedure. Due to the nature of
the fluids and particles removed during surgical procedures, the SYSTEM is recommended to be cleaned following each use. The disposables
have the “razor blade business model” characteristic with an ongoing stream of revenue for every SYSTEM unit installed,
and revenues from the sale of the disposables are expected to be significantly higher over time than the revenues from the sale
of the unit. Our disposable, bifurcated filter is designed specifically for use only on our SYSTEM. The filter is used only once
per procedure followed by immediate disposal. Our operation instructions and warranty require that a Skyline filter is used for
every procedure. We have exclusive distribution rights to the disposable fluid and facilitate the use of only our fluid for cleaning
following procedures by incorporating a special container to connect the fluid to the connector on the SYSTEM. We will also tie
the fluid usage, which we will keep track of with the SYSTEM software, to the product warranty.
Corporate Strategy
Our strategy is focused on expansion within our core product
and market segments, while utilizing a progressive approach to manufacturing and marketing to ensure maximum flexibility and profitability.
Our strategy is to:
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Develop a complete line of wall-mounted fluid evacuation systems for use in hospital operating rooms, radiological rooms and free standing surgery centers as well as clinics and physicians’ offices.
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Provide products that greatly reduce healthcare worker and patient exposure to harmful materials present in infectious fluids and that contribute to an adverse working environment.
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Provide a hybrid sales force utilizing direct salespersons, manufacturing representatives and distributors.
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Continue to utilize operating room consultants, builders and architects as referrals to hospitals and day surgery centers.
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Other strategies may also include:
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Partnering with leading GOP’s (Group Purchasing Organizations) to gain access to the majority of hospital systems in the United States.
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Employing a lean operating structure, while utilizing the latest trends and technologies in manufacturing and marketing, to achieve both market share growth and projected profitability.
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Providing a leasing program and/or “pay per use” program as alternatives to purchasing.
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Providing service contracts to establish an additional revenue stream.
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Utilizing the manufacturing experience of our management team to develop sources of supply and manufacturing to reduce costs while still obtaining excellent quality. While cost is not a major consideration in the roll-out of leading edge products, we believe that being a low-cost provider will be important long term.
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Offering an innovative warranty program that is contingent on the exclusive use of our disposables to enhance the success of our after-market disposable products.
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Technology and Competition
Fluid Management for Surgical Procedures
The management of surgical waste fluids produced during and
after surgery is a complex mix of materials and labor that consists of primary collection of fluid from the patient, transportation
of the waste fluid within the hospital to a disposal or processing site and disposal of that waste either via incineration or in
segregated landfills.
Once the procedure has ended, the canisters currently being
used in many cases, and their contents must be removed from the operating room and disposed. There are several methods
used for such disposal, all of which present certain risks to the operating room team, the crews who clean the rooms following
the procedure and the other personnel involved in their final disposal. These methods include:
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Direct Disposal Through the Sanitary Sewer.
In virtually all municipalities, the disposal of liquid blood may be done directly to the sanitary sewer where it is treated by the local waste management facility. This practice is approved and recommended by the EPA. In most cases these municipalities specifically request that disposed bio-materials not be treated with any known anti-bacterial agents such as glutalderhyde, as these agents not only neutralize potentially infectious agents but also work to defeat the bacterial agents employed by the waste treatment facilities themselves. Disposal through this method is fraught with potential exposure to the healthcare workers, putting them at risk for direct contact with these potentially infectious agents through spillage of the contents or via splash when the liquid is poured into a hopper – a specially designated sink for the disposal of infectious fluids. Once the infectious fluids are disposed of into the hopper, the empty canister is sent to central processing for re-sterilization (glass and certain plastics) or for disposal with the bio-hazardous/infectious waste generated by the hospital (red-bagged).
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Conversion to Gel for Red-Bag Disposal.
In many hospital systems, the handling of liquid waste has become a liability issue due to worker exposure incidents and in some cases has even been a point of contention during nurse contract negotiations. Industry has responded to concerns of nurses over splash and spillage contamination by developing a powder that, when added to the fluid in the canisters, produces a viscous, gel-like substance that can be handled more safely. After the case is completed and final blood loss is calculated, a port on the top of each canister is opened and the powder is poured into it. It takes several minutes for the gel to form, after which the canisters are placed on a service cart and removed to the red-bag disposal area for disposal with the other infectious waste. There are four major drawbacks to this system:
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It does not ensure protection for healthcare workers, as there remains the potential for splash when the top of the canister is opened.
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Based on industry pricing data, the total cost per canister increases by approximately $2.00.
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Disposal costs to the hospital increase dramatically as shipping, handling and landfill costs are based upon weight rather than volume in most municipalities. The weight of an empty 2,500 ml canister is about 1 pound. A canister and its gelled contents weigh about 7.5 pounds, and the typical cost to dispose of medical waste is approximately $.30 per pound.
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The canister filled with gelled fluid must be disposed; it cannot be cleaned and re-sterilized for future use.
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Despite the increased cost of using gel and the marginal improvement
in healthcare worker protection it provides, several hospitals have adopted gel as their standard procedure.
Drainage Systems
Several new medical devices have been developed which address
some of the deficiencies described above. MD Technologies, Inc., Cardinal Health, Inc., Dornoch Medical Systems, Inc. (now Zimmer)
and Stryker Instruments have all developed systems that provide disposal into the sanitary sewer without pouring the infectious
fluids directly through a hopper disposal or using expensive gel powders. Most of these newer products are currently sold with
510(k) concurrence from the FDA. Most of these competing products incorporate an internal collection canister with finite capacity,
and while not directly eliminating the need to transport a device to and from the surgical room, we believe most have been successful
in eliminating the need for expensive gel and its associated handling and disposal costs.
Existing competitors, that already have products on the market,
have a competitive advantage in terms of brand recognition and market exposure. In addition, the aforementioned companies have
extensive marketing and development budgets that could overpower an early stage company like ours.
We believe that Stryker Instruments has the dominant market
share position. We also believe competing products are used in select procedures and often in some, but not all, surgical procedures.
Current Competition, Technology, and Costs
Single Use Canisters
In the U.S., glass reusable containers are infrequently used
as their high initial cost, frequent breakage and costs of reprocessing are typically more costly than single use high impact plastic
canisters, even when disposal is factored in. Each single use glass canister costs roughly $8.00 each while the high
impact plastic canisters cost $2.00 - $3.00 each and it is estimated that a range of two to eight canisters are used in each procedure,
depending on the operation. Our SYSTEM would replace the use of canisters and render them unnecessary, as storage and disposal
would be performed automatically by the SYSTEM. We believe our true competitive advantage, however, is our unlimited
capacity, eliminating the need for any high-volume cases to be interrupted for canister changeover.
Solidifying Gel Powder
One significant drawback of the solidifying gels is that they
increase the weight of the materials being sent to the landfill by a factor of five to seven times, resulting in a significant
cost increase to the hospitals that elect to use the products. The SYSTEM eliminates the need for solidifying gel, providing savings
in both gel powder usage and associated landfill costs.
Sterilization and Landfill Disposal
Current disposal methods include the removal of the contaminated
canisters (with or without the solidifying gel) to designated biohazardous/infectious waste sites. Previously, many
hospitals used incineration as the primary means of disposal, but environmental concerns at the international, domestic and local
level have resulted in a systematic decrease in incineration worldwide as a viable method for disposing of blood, organs or materials
saturated with bodily fluids. When landfill disposal is used, canisters are included in the general red-bag disposal
and, when gel is used, comprise a significant weight factor. Where hopper disposal is still in use, most of the contents
of the red-bag consist only of outer packaging of supplies used in surgery and small amounts of absorbent materials impregnated
with blood and other waste fluid. These, incidentally, are retained and measured at the end of the procedure to provide
a more accurate assessment of fluid loss or retention. Once at the landfill site, the red-bagged material is often steam-sterilized
with the remaining waste being ground up and interred into a specially segregated waste dumpsite.
Handling Costs
Once the surgical team has finished the procedure, and a blood
loss estimate is calculated, the liquid waste (with or without solidifying gels) is removed from the operating room and either
disposed of down the sanitary sewer or transported to an infectious waste area of the hospital for later removal. The SYSTEM significantly
reduces the labor costs associated with the disposal of fluid or handling of contaminated canisters, as the liquid waste is automatically
emptied into the sanitary sewer after measurements are obtained. We utilize the same suction tubing currently being
used in the operating room, so no additional cost is incurred with our process. While each hospital handles fluid disposal
differently, we believe that the cost of our cleaning fluid after each procedure will be less than the current procedural cost
that could include the cost of canisters, labor to transport the canisters, solidifying powder, gloves, gowns, mops, goggles, shipping,
and transportation, as well as any costs associated with spills that may occur due to manual handling.
A hidden, but very real and considerable handling cost, is the
cost of infectious fluid exposure. A July 2007, research article published in
Infection Control Hospital Epidemiology,
concluded that “Management of occupational exposures to blood and bodily fluids is costly; the best way to avoid these
costs is by prevention of exposures.” According to the article, hospital management cost associated with occupational
blood exposure can, conservatively, be more than $4,500 per exposure. Because of privacy laws, it is difficult to obtain
estimates of exposure events at individual facilities; however, in each exposure the healthcare worker must be treated as a worse
case event. This puts the healthcare worker through a tremendous amount of personal trauma, and the health care facility
through considerable expense and exposure to liability and litigation.
Nursing Labor
Nursing personnel spend significant time in the operating room
readying canisters for use, calculating blood loss and removing or supervising the removal of the contaminated canisters after
each procedure. Various estimates have been made, but an internal study at a large healthcare facility in Minneapolis,
Minnesota, revealed that the average nursing team spends twenty minutes pre-operatively and intra-operatively setting up, monitoring
fluid levels and changing canisters as needed and twenty minutes post-operatively readying blood loss estimates or disposing of
canisters. Estimates for the other new technologies reviewed have noted few cost savings to nursing labor.
The SYSTEM saves nursing time as compared to the manual process
of collecting and disposing of surgical waste. Set-up is as easy as attaching the suction tube to the port(s) of the
disposable filter on the STREAMWAY SYSTEM. Post-operative clean-up requires approximately five minutes, the time required to dispose
of the suction tubing and disposable filter to the red-bag, calculate the patient’s blood loss, attach the bottle of cleaning
solution to the SYSTEM, initiate the cleaning cycle, and dispose of the emptied cleaning solution. The steps that our
product avoids, which are typically involved with the manual disposal process include, canister setup, interpretation of an analog
read out for calculating fluid, canister management during the case (i.e. swapping out full canisters), and then temporarily storing,
transferring, dumping, and properly disposing of the canisters.
Competitive Products
Disposable canister system technology for fluid management within
the operating room has gone virtually unchanged for decades. As concern for the risk of exposure of healthcare workers
to bloodborne pathogens, and the costs associated with canister systems has increased, market attention has increasingly turned
toward fluid management. The first quarter of 2001 saw the introduction of four new product entries within the infectious
material control field. Stryker Instruments introduced the “NeptuneTM” system, offering a combination of
bio-aerosol and fluid management in a portable two-piece system; Waterstone Medical (now DeRoyal) introduced the “Aqua BoxTM”
stationary system for fluid disposal; and Dornoch Medical Systems, Inc. (Zimmer) introduced the “Red AwayTM” stationary
system for fluid collection and disposal. All companies, regardless of size, have their own accessory kits.
We differentiate from these competitors since we are completely
direct-to-drain and have the most automatic, hands-free process of any of the systems currently on the market. Each
of our competitors, with the exception of MD Technologies, Inc., has some significant manual handling involved in the process. For
instance, some competing products require transport of the mobile unit to a docking port and then emptying of the fluid, while
others require that the canister be manually transported to a more efficient dumping station. Regardless, most of our competitors
require more human interaction with the fluid than our products do. Please refer to the chart included in the section
headed as Products for a comparison of the key features of the devices currently marketed and the STREAMWAY SYSTEM.
Although the mobility associated with most of the competing
products adds time and labor to the process and increases the chance of worker exposure to waste fluids, it also allows the hospital
to purchase only as many mobile units needed for simultaneous procedures in multiple operating rooms. With the SYSTEM, a
unit must be purchased and installed in each room where it is intended to be used.
Marketing and Sales
Distribution
We sell the SYSTEM and procedure disposables through various
methods that include a direct sales force and independent distributors covering the clear majority of major U.S. markets. Currently
we have one VP of Sales, one in house sales person and three regional sales managers selling, and demoing the SYSTEM for prospective
customers and distributors, as well as, supporting our current customer base for disposable resupply. We are in the process of
hiring one additional regional sales manager and various independent contractors. We are close to signing contracts with various
hospital purchasing groups and signed on independent distributors. Our targeted customer base includes nursing administration,
operating room managers, interventional radiology managers, CFOs, CEOs, risk management, and infection control. Other
professionals with an interest in the product include physicians, nurses, biomedical engineering, anesthetists, imaging, anesthesiologists,
human resources, legal, administration and housekeeping.
The major focus of our marketing efforts is to introduce the
SYSTEM as a standalone device capable of effectively removing infectious waste and disposing of it automatically while providing
accurate measurement of fluids removed, and also limiting exposure of the surgical team and healthcare support staff.
Governmental and professional organizations have become increasingly
aggressive in attempting to minimize the risk of exposure by medical personnel to bloodborne pathogens. We believe that the
SYSTEM provides a convenient and cost effective way to collect and dispose of this highly contaminated material.
Our distributors may have installation and service capability,
or we will contract those functions with an independent service/maintenance company. We have hired both distributors
and service companies regarding these installation requirements. We have established extensive training and standards
for the service and installation of the SYSTEM to ensure consistency and dependability in the field. Users of the system
require a minimal amount of training to operate the SYSTEM. The instructions for use and the installation guide are included
with every system along with a quick start guide, a troubleshooting manual and an on-board PLC controlling an intuitive touch screen
with step by step instruction and safety features.
We have structured our pricing and relationships with distributors
and/or service companies to ensure that these entities receive at least a typical industry level compensation for their activities.
Promotion
The dangers of exposure to infectious fluid waste are well recognized
in the medical community. It is our promotional strategy to effectively educate medical staff regarding the risks of
contamination using current waste collection procedures and the advantages of the SYSTEM in protecting medical personnel from inadvertent
exposure. We are leveraging this medical awareness and concern with education of regulatory agencies at the local, state
and federal levels about the advantages of the SYSTEM.
We supplement our sales efforts with a promotional mix that
include a number of printed materials, video support and a website. We believe our greatest challenge lies in reaching
and educating the 1.6 million medical personnel who are exposed daily to fluid waste in the operating room or in other healthcare
settings (OSHA, CPL 2-2.44C). These efforts require utilizing single page selling pieces, video educational pieces for
technical education, use of scientific journal articles and a webpage featuring product information, educational materials, and
training sites.
We support our sales organization by attending major scientific
meetings where large numbers of potential users are in attendance. The theme of our trade show booths focus on education,
the awareness of the hazards of infectious waste fluids and the Company’s innovative solution to the problem.
We have focused our efforts initially on the Association of Operating Room Nurses (“AORN”) meetings, where the largest
concentration of potential buyers and influencers are in attendance and the Radiological Society of North America Scientific Assembly
and Annual Meeting. We have partnered with the Association for Radiologic & Imaging Nursing (“ARIN”)
and the American Healthcare Radiology Administrators (“AHRA”). We feature information on protection of the healthcare
worker on our website as well as links to other relevant sites. We have invested in limited journal advertising for targeted audiences
that have been fully identified. The initial thrust focuses on features of the product and ways of contacting the Company
via the webpage or directly through postage paid cards or direct contact.
Pricing
We believe prices for the SYSTEM and its disposables reflect
a substantial cost savings to hospitals compared to their long-term procedure costs. Our pricing strategy ensures that
the customer realizes actual cost savings when using the SYSTEM versus replacing traditional canisters, considering the actual
costs of the canisters and associated costs such as biohazard processing labor and added costs of biohazard waste disposal. Suction
tubing that is currently used in the operating room will continue to be used with our system and should not be considered in the
return on investment equation. Our cleaning solution’s bottle is completely recyclable, and the selling
price of the fluid is part of the return on investment equation. The 2-port disposable filter is also integral to our
STREAMWAY SYSTEM and is also part of the return on investment equation. In contrast, an operation using traditional disposal methods
will often produce multiple canisters destined for biohazard processing. Biohazard disposal costs are estimated by
Outpatient Surgery Magazine to be 5 times more per pound to dispose of than regular waste (
Outpatient Surgery Magazine, April
2007).
Once the canister has touched blood, it is considered “red bag” biohazard waste, whereas the cleaning fluid
bottle used in the SYSTEM can be recycled or disposed with the rest of the facility’s plastics.
The SYSTEM lists for $24,900 per system (one per operating room
– installation extra) and $24 per unit retail for the proprietary disposables: one filter and one bottle of cleaning solution
to the U.S. hospital market. By comparison, the disposal system of Stryker Instruments, one of our competitors,
retails for approximately $25,000 plus an $11,000 docking station and requires a disposable component with an approximate cost
of $25 - $50 per procedure and a proprietary cleaning fluid (cost unknown per procedure). Per procedure cost of the
traditional disposal process includes approximate costs of $2 - $3.00 per liter canister, plus solidifier at $2 per liter canister,
plus the biohazard premium disposal cost approximated at $1.80 per liter canister. In addition, the labor, gloves, gowns,
goggles, and other related material handling costs are also disposal expenses.
Installation is done by distributors, independent contractors,
or in-house engineering at an estimated price of $300 - $1,000, depending on the operating room. Installation of the
SYSTEM requires access only to the hospital’s sanitary sewer, vacuum suction, and electricity. To help facilities
maintain their utilization rates, we recommend installation during off peak hours. In smaller facilities, an outside
contractor may be called in, while larger institutions have their own installation and maintenance workforce. Installation
time should not seriously impact the use of the operating room. Each SYSTEM has an industry standard warranty period
that can be extended through documented use of our disposables: one filter and one bottle of cleaning solution per procedure.
Engineering and Manufacturing
We are currently manufacturing the SYSTEM in a leased facility.
We have the capability to manufacture, test, house, ship and receive from our warehouse. We contracted a manufacturing company,
Wair Products in Bloomington, Minnesota, that meets our standards and requirements and that can produce six times the amount of
SYSTEM’s produced in-house at our facility monthly as sales increase.
The disposables, including a bottle of proprietary cleaning
solution and a 2-port disposable filter, is sourced through Diversified Manufacturing Corporation (cleaning solution) situated
in Newport, Minnesota and MPP Corporation (filters), located in Osceola, Wisconsin that has tooled to manufacture our own newly
designed disposable filter.
Government Regulation
To date, no regulatory agency has established exclusive jurisdiction
over the area of biohazardous and infectious waste in healthcare facilities. Several organizations maintain oversight function
concerning various aspects of pertinent technologies and methods of protection.
These agencies include:
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OSHA (Occupational Safety and Health Administration)
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EPA (Environmental Protection Agency)
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DOT (Department of Transportation)
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JCAHO (Joint Commission of Accreditation of Hospitals)
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NFPA (National Fire Protection Association)
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AIA (American Institute of Architects)
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AORN (Association of Operating Room Nurses)
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